Tag Archives: Eurozone

It was through a narrow and discrete door that Italy’s longest serving PM, Silvio Berlusconi, left the presidential palace late Saturday night to the chants of “hallelujah!” from protestors that had gathered to celebrate his resignation. After a high profile career that has controversially shaped Italy’s political landscape, the self styled “Il cavaliere” (the Knight) may have hung up his armour – yet his legacy leaves behind a nation that is edging closer to the precipice, amidst crippling debts and a society that has lost faith in its political class.

Heralded as an “outsider”, the self-made media tycoon was considered by many Italians in the early 1990s as a credible alternative to what may saw as a corrupt, clientelist and uninspiring political system. Casting himself as a moderniser and reformer who would bring about an “economic miracle” – Berlusconi’s legacy could not have been any further from the truth.
Reaction to the news of Berlusconi’s resignation.

Economic regression

Statistically, Italian debt currently stands at €1.9 trillion, at 120% of its annual GDP (the third most indebted nation in the “developed” world); with lending rates dangerously touching the 7% mark, a level at which lending is seen as unsustainable, and where a bail-out – in the image of Greece, Ireland and Portugal – may eventually become a reality. In the decade leading to 2010, only Haiti and Zimbabwe were ranked as having lower growth, with Italian GDP per head actually regressing. As well as this, Italy’s ageing population is a cause for concern in the context of growth forecasts, more than a quarter of young people are unemployed – a figure that rises to 40% in the south. Moreover, low productivity rates and high wages took haven taken their toll on competitiveness and job creation: whereas productivity rose by a fifth in the US and a tenth in Britain in the last ten years, Italy saw its production rate fall by 5%. It comes as no surprise that Italy is ranked 80th in the World Bank’s “Doing Business” index, below Belarus and Mongolia, and currently stands in 48th place in the World Economic Forum’s competitiveness rankings, behind Indonesia and Barbados.

Earlier this month, amidst market volatility, Berlusconi’s government performance over the Eurozone crisis came under close scrutiny from the IMF and European counterparts at the G20 summit in Cannes. Whilst many economists believed that Italy’s position was “markedly worse” than Spain, the IMF and European Union promptly dispatched observers and audit officers to Rome – a humiliating step for Europe’s third largest economy. In response, and to the stupefaction of many Italians, Berlusconi stated that life in Italy was that of a “wealthy country, it’s hard to find seats on planes, and our restaurants are full of people”.

Despite Berlusconi’s initial efforts to shrug off such procedure as a mere audit at a time of difficulty, IMF boss, Christine Lagarde, summarised the gravity of the situation as “identified both by the Italian authorities and by its partners, as a lack of credibility of the measures that are announced.” Or in other words, the lack of credibility in both Mr Berlusconi and his capability to deliver necessary measures.

Angela Merkel and Nicolas Sarkozy answering questions on Berlusconi.

With 51 votes of confidence in his government since 2008 and four ongoing trials – Berlusconi’s credibility, or lack of it, was not confined to the economy. For Andrea Mammone, the media-mogul’s “mediaitsation” of politics eventually became a “one-man-show centered on the increasingly-absurd figure of Berlusconi”. The high profile “bunga-bunga” sex scandals, along with police investigations into allegations of fraud, to the increasingly hard-line proposals to stop wiretapping, changes in juvenile prostitution laws, – projected the image of a “banana republic” in which a modern democracy could be run as a personal business entity. The promotion of showgirls and actresses into parliament, government and even as party candidates in regional elections, cultivated the macho and openly sexist portrayal of Berlusconi, whom in April 2011 joked “When asked if they would like to have sex with me, 30% of women said, ‘Yes’, while the other 70% replied, ‘What, again?’.”

It’s unsurprising to say that over the years, Berlusconi lost credibility both at home and abroad. Yet in the end it wasn’t his relationship with juvenile prostitutes, his eccentrics, allegations of corruption, nor his prolific contempt for the judiciary and the judges that were after him. In the end, the man who promised that he would deliver a “new economic miracle” – was finally brought down to earth by his failure to make the Italian economy grow.

In fact, this week the UK has once again proven to be the awkward partner of Europe, completely out of touch with its counterparts and almost guilty of displaying an ‘I told you so’ attitude towards the tumultuous plight of the eurozone, puzzlingly nonchalant towards the interconnectedness of European economies, including its own.

Jose Manuel Barrosso emerging from the eurozone talks in Brussels

Not happy with missing out on the vital talks, earlier in the week, the Commons held a debate on Britain’s future membership of the EU. In principle, considering the public’s general attitude towards EU membership coupled with the negative attitudes held across the political spectrum by mainstream MPs and backbenchers alike, this is a wholly plausible debate. However, the timing seemed so ill-advised and genuinely unhelpful to the rest of Europe it defied belief.

Then comes the Commonwealth Summit in Chogm, Perth. Despite the wishes of those who look wistfully back to the days of colonial Britain, the Commonwealth, while undoubtedly an important historical tie, is not the way for the UK to thrust itself into political significance and certainly not the answer to the current economic crisis engulfing the nation. Unlike the ‘glorious’ past, the EU are now the UK’s predominant trading partners and the fact that our Prime Minister was in Perth debating changes to the monarchy rather than being involved in discussions vital to the future of that organisation’s economic wellbeing is frankly embarrassing.

Now, regardless of the debate over the continued existence of the monarchy, the decision to finally make amendments to the laws of succession is a welcome one. In our times, it’s odd that men should still succeed to the throne in favour of their older sisters. But this is so miniscule an issue at this time, that it’s just plain bizarre that Britain, a country that regards itself so focal to the international political and economic system, has spent such an important week on the sidelines of Europe, a main centre of power, choosing to instead focus on re-evaluating its position as an EU member before switching its attention to the Commonwealth.

Queen Elizabeth II's coronation.

Arguably, the root source of the eurosceptism that blights the British discourse on the EU is founded on a superiority complex dating back to our nation’s colonial past. Since the end of WWII this has not been the case, but yet critics and the public hark on convinced that this relatively small isle is still the powerful nation it once was. A nation’s pride so damaged by its own fall that instead of accepting its position within the world order, consecutive governments have moved us along in blissful ignorance of our re-orientation. Unlike the Commonwealth, Europe is the real opportunity to prove significant in the 21st century and once again the UK has proven to be a step out of sync. It remains to be seen whether this will come back to haunt us in the coming years, as the pound looks increasingly weak and the eurozone perhaps grows once more.

Earlier this week, German consultancy group Roland Berger unveiled its strategy for combating the troublesome Eurozone crisis.

Presented as a ‘viable and credible’ alternative, Eureca inspires itself from the Trust Agency (Treuhandanstalt) that set about restructuring the obsolete East German economy in the immediate aftermath of German unification in 1990 – and consequently leading to the privatisation of 8,500 industrial and business assets in Eastern Germany alone. Yet akin to the Treuhand’s controversial legacy, Le Monde correspondant Charlotte Chabas questions the controversial impact of such an ‘aaudacious’ plan, notably on the issue of safeguarding Greece’s sovereignty.

It says it all itself.

The plan

‘Eureca’ would initially consist of transferring Greece’s public assets (estimated to total €125 billion) – from state property, telecommunications, banks, to ports, airports and highways – within a European holding firm financed by EU member states, who would then proceed in retaining or the outright selling off of such resources.

From here, the generated funding from such sales would, in principle, enable the Greek state to reimburse its lenders and theoretically reduce its current debt/GDP ratio of 145%, to 60% by 2025. Roland Berger highlight that this would not only drastically cut interest rates on loans, but also re-inject money into the Greek state through investment and the creation of an estimated 250,000 jobs.

Should things go to plan, this would result in Greece coming within European stability pact guidelines (concerning public debt) by 2025, and reducing aggressively market speculations on Greek, Italian, Irish or Spanish defaults – thus not only permitting the reintroduction of economic growth in Greece, but also safeguarding the stability of the Eurozone.

Whilst members of the ‘Troika’ (IMF, European Central Bank and European Commission) have formally ruled out all talks of mass ‘transfers’ of Greece’s public structures, La Tribune financial expert François Roche argues that it is ‘very likely’ that such ‘plans’ were concocted within Angela Merkel’s entourage and with the European Commission’s expert approval.

roughsociety’s final word
In the face of nervous European markets and a stagnating Eurozone – whilst not forgetting Germany’s cynicism over its role in the current bail outs – it seems that Europe is left with a decision; whether to expel Greece from the Eurozone and see it implode, or continue with its costly and unaffordable bailouts. Furthermore, it would be all too easy to forget that much uncertainty looms over the cases of Italy and Spain. Whilst ‘Eureca’ may well become an unprecedented reality, it is one that the Troika will feel as being a case of selling the furniture in order to save the house.